Profits and Gains of Business or Profession (PGBP)

Profits and Gains of Business or Profession (PGBP) is one of the five heads of income under the Income Tax Act. It covers income earned from any business activity or professional services carried out by a taxpayer.

This includes profits from trade, commerce, manufacturing, or professional services like CA, legal, medical, consulting, etc.

1. What is Included Under PGBP

Income covered under this head includes:

• Business profits from trading or manufacturing
• Professional income (CA, doctor, lawyer, consultant, freelancer)
• Income from commission, brokerage, or fees
• Income from business assets or operations
• Any other income directly related to business or profession

2. How Income is Computed

Business income is calculated after deducting allowable expenses:

$\text{Business Income}=\text{Total Revenue}-\text{Allowable Business Expenses}$

3. Allowable Expenses

Expenses must be:

• Incurred wholly and exclusively for business
• Properly documented

Common examples:

• Rent, salaries, and utilities
• Office expenses
• Depreciation on assets
• Professional fees
• Interest on business loans

4. Disallowed Expenses

Certain expenses are not allowed, such as:

• Personal expenses
• Income tax paid
• Penalties or fines
• Cash payments exceeding prescribed limits

5. Presumptive Taxation

Small businesses and professionals can opt for presumptive schemes:

• Section 44AD (business)
• Section 44ADA (profession)

This simplifies compliance by taxing income at a fixed percentage.

6. Books of Accounts & Audit

• Maintaining books is mandatory in many cases
• Tax audit is required if turnover exceeds prescribed limits
• Proper record-keeping is essential for compliance

7. Common Mistakes

• Mixing personal and business expenses
• Claiming ineligible deductions
• Not maintaining proper records
• Ignoring audit requirements

Practical Insight

Most people focus on revenue.

Tax law focuses on:
👉 profit after allowable expenses

The real optimisation comes from:

• structuring expenses correctly
• maintaining proper documentation
• choosing the right taxation scheme

How N D Savla & Associates Can Help

At N D Savla & Associates, we help you:

• Compute business income accurately
• Identify and maximise allowable deductions
• Guide on presumptive vs regular taxation
• Ensure compliance with audit and filing requirements